News Column

UK MIDDAY BRIEFING: Next Remains Stand-Out UK Retailer

July 29, 2014



LONDON (Alliance News) - Next, which has already grown to become the UK's second-biggest retailer by market value behind Tesco, saw its shares rise again Tuesday after it raised its profit guidance for the current financial year for a second time thanks to strong sales growth across its business in the first half.



Next raised its pretax profit guidance for the year ending in January 2015 by GBP25 million, and said it now expects to deliver a profit in the region of GBP775 million and GBP815 million, growth of between 11% and 17%. It also raised its guidance for earnings per share to growth of between 12% and 18%, up from the 8% to 14% guidance it gave in April.



In the first half, it opened new stores, and increased sales from existing stores, its buoyant online business and its international operations. Total brand sales were up 11% in the second quarter and for the first half of the year to July 26, with 2.4% growth coming from new stores. Retail sales from Next stores were up 7.5% in the first half of the year, while Next Directory sales rose 16%, boosted by a particularly strong second quarter.



The retailer had already raised its profit and sales guidance forecasts for the current financial year once this year, after reporting strong sales growth in the first quarter from both its retail stores and online business.



Top Five UK Retailers By Market Value (Excluding luxury goods):

Tesco GBP21.93 Billion

Next GBP10.28 Billion

Marks & Spencer GroupGBP7.15 Billion

Kingfisher GBP7.12 Billion

J Sainsbury GBP6.19 Billion



BP has warned that further sanctions against Russian partner Rosneft OAO could 'adversely impact' the company, as the oil and gas major reported higher profit in its second quarter but a decline in profit for the whole of the first half.



The oil and gas giant said its first half pretax profit more than halved to USD11.14 billion for the six months ended June 30, from USD24.62 billion in the previous year, as revenue and other income fell 7.0% to USD188,82 billion from USD202.92 billion.



The company said production dropped 7.3% to 2,118 million barrels of oil equivalent per day, leading to a drop in downstream revenues to USD171.17 billion, from USD175.13 billion.



However, the majority of its comparative decline in first-half profit came from much lower disposal gains. In the first half of 2014, the company posted disposal gains of USD379 million, but in the same period the previous year, the company disposed of USD12.78 billion worth of assets.



Its second quarter pretax profit rose 22% to USD5.50 billion, from USD4.49 billion a year earlier, as lower purchase, production, manufacturing, exploration and administrative expenses costs offset a slight fall in revenues.



BP has a 19.75% holding in Rosneft, the world's largest extractor of natural gas, and said on Tuesday that further sanctions 'could adversely impact' its business and strategic objectives in Russia. It said the sanctions so far have had no material adverse impact on the company, but it will continue to keep the situation under review.



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Markets: UK stock indices have been edging higher since mid-morning, buoyed by the banking stocks, as well as some strong performers in the retail sector, while the oil and gas giants are capping index gains as investors continue to remain cautious ahead of an expected sanction announcement from Brussels which could hit the whole energy sector.



US futures are indicating a slightly higher open on Wall Street, with the pharmaceutical sector providing a boost after both Merck and Pfizer beat second quarter earnings expectations ahead of the opening bell.



FTSE 100: up 0.5% at 6,819.22

FTSE 250: up 0.6% at 15,715.83

AIM ALL-SHARE: down 0.1% at 771.10

GBP-USD: down at 1.6956

EUR-USD: flat at 1.3431

GOLD: up at USD1,307.60 an ounce

OIL (Brent): up at USD107.69 a barrel

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Other Top UK Corporate News

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Automotive and aircraft parts engineer GKN has seen its shares rise after it said its pretax profit rose 6% to GBP296 million in the half year to end-June, up from the GBP278 million a year earlier, as automakers used more GKN parts in their cars. Its recent restructuring paid off, as margins rose, helping offset a marginal decline in revenue for the period, down 1% to GBP3.83 billion from GBP3.87 billion, due to a GBP247 million currency hit that was mainly due to the strength of sterling. On an organic basis, revenue was up 6%, driven by its driveline unit.

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St James's Place raised its interim dividend for the half year to end-June and pledged further dividend growth for the full year, as it saw strong growth in its net inflow of funds under management but a sharp fall in half-year pretax profit. The financial services company posted an interim dividend of 8.93 pence, up 40% from 6.38 pence. St James's said it expects to increase its full-year dividend by a similar amount, signalling its confidence for the future, it said. The company said it plans to continue its progressive dividend policy, growing its future dividend in line with its underlying performance.

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The UK's big-four supermarket chains continue to face pressure from heavy discounters and upmarket grocers, but while J Sainsbury and Asda have maintained market share and sales, Tesco and Wm Morrison Supermarkets are seeing drops in both, according to the latest figures from Kantar Worldpanel. Morrisons and Tesco both recorded sales drops of 3.8% in the 12 weeks to July 20 from the same period a year earlier, and also saw a dip in their market shares. Morrisons' market share fell to 11.0% from 11.5% last year, while Tesco's market share declined to 28.9% from 30.3% a year before. In contrast, both Sainsbury's and Asda continue to outperform the other two, posting growth in sales in the 12 week period and managing to maintain market share. Sainsbury's sales rose 1.2% year-on-year, and its market share remained level at 16.6%, compared to a year before.

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Wm Morrison Supermarkets said Andrew Higginson is to replace Ian Gibson as the company's chairman when Gibson retires in 2015. Ahead of taking up the role, Higginson will join the board of the supermarket on 1 October as non-executive deputy chairman and chairman elect. Higginson currently holds chairmanships at Poundland and N Brown and is a senior independent director at British Sky Broadcasting Group. Prior to this, he was an executive director at Tesco for 15 years. As part of the move, Higginson will step down as chairman of Poundland, which said Tuesday he would be replaced by Darren Shapland.

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Rolls-Royce Holdings was hit by another cancellation of an order for large Airbus aircraft that had been due to be fitted with the British company's engines, just weeks after a cancellation wiped about 3.5%, or GBP2.6 billion, off its order book. The aircraft and marine engine maker said Airbus had terminated an order for six A380 aircraft from Skymark airline of Japan. The planes, which had been due for delivery between 2014 and 2015, had been due to be fitted with Rolls-Royce Trent 900 engines, and the airline had also booked Rolls-Royce's follow-up servicing package for the engines. Rolls-Royce said the new cancellation had reduced its order book by GBP351 million, or about 0.5% of its GBP71.4 billion order book as at December 31, 2013.

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Mondi said it expects underlying operating profit for its first-half to come in higher than the comparative period last year due to lower special charges. It said it expects its underlying operating profit to be above that of the EUR367 million recorded in the first-half of 2013. The company has also advised that basic earnings per share for the half-year are now expected to be between 46 to 51 euro cents, up on the EUR35.3 cents reported last year.

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Babcock International Group said it has appointed Finance Director Bill Tame as chief executive of the group's enlarged International division. Tame has served as group finance director since 2002. In the new role he will take over responsibility for the South African operations and the Avincis Group, as well as the group's business development activities in the Middle East. Following Tame's appointment, Babcock has promoted Franco Martinelli to the role of group finance director. Martinelli has served as Babcock's group financial controller for 12 years.

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Drax Group said it swung to a pretax loss in its first half and it lowered its interim dividend, as higher revenues were more than offset by significant costs during the period. The FTSE 250-listed UK energy provider posted a pretax loss of GBP10.8 million for the six months ended June 30 compared with a pretax profit of GBP205.6 million the previous year. Drax said at the time that since publishing its preliminary results on February 18, mild weather across Europe had led to weaker gas markets and a further fall in power prices, while abnormally high amounts of wind generation had pushed down the price of its renewables obligation certificates prices.

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Tullett Prebon said that revenue and pretax profit declined in its first-half amid challenging market conditions as the overall level of activity in the financial markets remained subdued. In an interim management statement for the six months to June 30, 2014, the interdealer broker said revenue fell 15% to GBP360.3 million compared to GBP439.8 million last year, while pretax profit slumped to GBP8.9 million from the GBP52.5 million recorded in the first half of 2013. The company has retained its interim dividend at the 5.6 pence per share paid last year.

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Elementis said its pretax profit increased in its first half due to sales improvements in its Specialty Products division. The FTSE 250-listed chemicals company said its pretax profit increased 7.2% to USD72.4 million for the six months ended June 30 from USD67.5 million in the previous year, as revenue increased 3.0% to USD400.0 million from USD388.2 million The company said revenues were supported by a 4% increase in Specialty Products' sales, with personal care products sales volumes increasing 21% and growth in both North American and Asia Pacific coatings operations. As such, the company increased its interim dividend by 5% to 2.70 cents from 2.57 cents previously.

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AIM MOVERS

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Antrim Energy's shares have more than doubled after it said results from a prospective resources report over its FEL 1/13 licence, which includes its 25%-owned Skellig block offshore Ireland, shows a potential 1.1 billion barrels of oil equivalent. Fitbug Holdings is up by more than a quarter after it secured a GBP1.75 million loan from NW1 Investments Ltd and Kifin Ltd.MoPowered Group is also doing well after it launched a new product that it says will help it achieve revenue targets in 2014 and beyond, and said it had already signed a two-year initial contract for the product. It launched MoPowered 3DS, which is the commercialisation of a technology it has been using as a component in its software-as-a-service platform. West African Minerals Corp is up after it found two zones of iron mineralisation in coastal regions of Cameroon and Sierra Leon following data gathering and trenching tests. It said that data gathering on the Sanaga lease on the coast of Cameroon has shown several areas of surface level magnetite-bearing rocks with grades ranging from 29.1% iron to 66.3% iron. Hydrodec Group is another gainer after it said its pretax loss narrowed in its first-half as revenues almost doubled on higher sales volumes brought about by its acquisition of OSS Group last year. Kibo Mining is up after it hired Minxcon Projects to carry out a Definitive Mining Feasibility Study on the Rukwa Coal to Power Project in Tanzania. The study, which will start immediately, is expected to be completed by November. Kibo also said it reached terms on a joint development partnership for Rukwa over the past month, but will delay signing of the agreement until the Stage 1 is completed. Camkids Group is up after the Chinese designer and manufacturer of kids and teenage outdoor clothing said it continues to trade in line with market expectations, supported by retail store expansion and its fledgling e-commerce business. Intandem Films is down after it warned that its financial position "remains difficult," even though it achieved positive results at the recent Cannes Film Festival. It saw film sales of USD2.0 million following the festival, which has generated commission revenue of USD272,725, which it expects to receive by the end of 2014.

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Top Economics And General

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UK mortgage approvals increased more than expected in June to the highest level since last February, data showed. Approvals for house purchases increased to 67,196, a 4-month high, from 62,007 in May, the Bank of England said. It was forecast to rise moderately to 63,000. Total lending to individuals increased GBP 2.5 billion. Within the total, lending secured on dwellings increased by GBP 2.1 billion in June, compared to GBP 2.3 billion rise in May. On a yearly basis, secured lending was up 1.5%. Consumer credit grew only GBP 0.4 billion after rising GBP 0.7 billion. Annually, growth remained unchanged at 5.3%.

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The International Monetary Fund advised the UK to tighten its monetary policy if new regulations introduced to contain overheating in the housing market prove ineffective. The IMF late Monday said the monetary policy should stay accommodative until inflation show signs of rising or that costs move ahead of productivity growth. However, the lender said interest rates might need to be raised quickly if inflationary pressures intensify. The Bank of England may need to consider raising interest rates in case macroprudential measures prove insufficient to deal with financial stability risks from the housing market, it said. The Washington-based lender welcomed the micro and macroprudential measures taken by both the government and central bank. Last month, the BoE introduced new controls on mortgage lending.

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Germany's import prices continued to decline in June, data from Destatis showed. Import prices were down 1.2% year-on-year in June, slower than the 2.1% decrease seen in May. The rate of decline came in line with economists' expectations. On a monthly basis, import prices advanced 0.2% after staying flat in May. Economists had forecast a 0.3% rise for June.

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The EU was set to consider imposing economic sanctions against Russia, amid an international effort to turn up the heat on Moscow for its actions in Ukraine. The EU has already hit individuals, companies and other entities with such measures, but had steered clear of targeting whole sectors of the Russian economy amid fears of the fallout for its own finances. Many EU countries have close business and trade ties with Moscow. But the downing of a Malaysia Airlines plane with 298 people on board, which has been blamed on Moscow-backed separatists, helped tip the scales. The EU has issued several new round of sanctions over the last week, with the economic sanctions set to be the toughest so far.

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The US government is convinced that Russia violated an arms control treaty by testing a ground-launched cruise missile, according to a report in The New York Times late Monday. President Barack Obama had informed Russian President Vladimir Putin of the findings in a letter on Monday, the report said, citing unnamed senior American officials. The move further complicates an already fraught relationship between Moscow and Washington over the Ukraine crisis.

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Fighting in the area around the Malaysia Airlines crash site in eastern Ukraine prevented a team of unarmed Dutch and Australian police officers from reaching the wreckage for a second consecutive day Monday. The Organization for Security and Co-operation in Europe (OSCE) said "security reasons" led to their convoy turning back to the city of Donetsk. A visit by the Dutch and Australian teams to secure the debris site and collect remaining bodies was also cancelled on Sunday amid reports of fighting between government forces and pro-Russian separatists.

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Israeli military jets struck the house of Ismail Haniya, deputy chief of the Islamist Hamas movement, in western Gaza City, local media and witnesses said. No injuries were reported and neither Haniya nor his family were at home when it was destroyed by the missiles, Hamas' al-Aqsa television reported. Airstrikes on central and southern areas of the Gaza Strip killed at least 16 Palestinians and wounded more than 50 others early Tuesday, medics and witnesses said.

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Afternoon Watchlist (all times British Summer Time)



13:55 US Redbook index

14:00 US S&P/Case-Shiller Home Price Indices

15:00 US Consumer Confidence

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Wednesday's Key UK Corporate Events



Taylor Wimpey Half Year Results

National Express Group Half Year Results

Segro Half Year Results

Tarsus Group Half Year Results

First Quantum Minerals Q2 Results

Vedanta Resources Q1 Results

Better Capital PCC Full Year Results

Noble Corporation Half Year Results

3i Group Interim Management Statement

Compass Group Half Year Results

Mithras Investment Trust Half Year Results

Impellam Group Half Year Results

Travis Perkins Half Year Results

Diploma Interim Management Statement

International Personal Finance Half Year Results

ITV Half Year Results

Barclays Half Year Results

4imprint Group Half Year Results

Antofagasta Q2 Production Report

WS Atkins Interim Management Statement

British American Tobacco Half Year Results

Devro Half Year Results

Dignity Half Year Results

Mecom Group Half Year Results

MoneySupermarket.com Group Half Year Results

Rightmove Half Year Results

Tullow Oil Half Year Results

Jupiter Fund Management Half Year Results

Greggs Half Year Results

Riverstone Energy Half Year Results

ITM Power Full Year Results

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Wednesday's Key Economic Events (all times British Summer Time)



00:50 Japan Industrial Production

All Day G20 Meeting

05:00 Japan Vehicle Production

07:45 France Consumer Confidence

10:00 EU Consumer Confidence

10:00 EU Economic Sentiment Indicator

12:00 US MBA Mortgage Applications

13:00 Germany Consumer Price Index

13:30 US Gross Domestic Product Price Index Preliminary

15:30 US EIA Crude Oil Stocks change

19:00 US Fed Interest Rate Decision

19:00 US Fed's Monetary Policy Statement

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Contact: +44 203 668 7440; newsroom@alliancenews.com; @AllNewsTeam






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